Consumers lacking an “adequate” retirement income is the “central challenge” facing the pensions sector in 2019, according to the Financial Conduct Authority (FCA).
In its Sector Views 2019 published today, 10 January, the FCA said that despite master trusts recording almost 2.8 million new members in 2017, overall contribution rates continued to be lower than 6 per cent.
The report also highlights areas such as pension scams, poor value and unsuitable products which contribute to the central concerns.
Hargraves Lansdown head of policy, Tom McPhail, said: “For all the recent successes of auto-enrolment and pension freedom, investors still face significant risks in saving for retirement. Average contribution rates have fallen and many millions of people either aren’t saving enough, or simply aren’t saving at all.
“We’ve laid some really positive foundations for peoples’ futures; the essential solution for policymakers, regulators and the pensions industry now lies in making it simpler and easier for individuals to engage with pensions and plan for retirement.”
There was some sign of this, with the report noting that three of the biggest pension providers, covering over half of the 9.3 million savers, announced design updates to their products, in order to align more closely with the retirement choices consumers now have, as a result of pension freedoms”.
According to the FCA, defined benefit to defined contribution transfers continued to rise in 2017, however, the overall impact of pension freedoms on the retirement income market has started to stabilise.
Low levels of consumer confidence, consumers who are not being enabled to make good decisions and inadequate support for those that are, were also highlighted as key concerns.
The regulator highlighted macro-economic developments and societal changes, such as increasing individual financial responsibilities and an ageing population, as key drivers of the transformation.
Additionally, the FCA said that the sector was also struggling with legacy system issues, with new technologies holding the prospect of a lower cost and more holistic retirement.
Commenting, Quilter pensions expert, Ian Browne, said: "It is vital that this area is appropriately regulated, but the deluge of changes seen over the past number need to embed first.
“Indeed, for the industry to consider potential solutions to some of the new societal challenges facing generations they first need to be confident that the rules they are structuring those solutions around will not change.”